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Warren Mosler Inflation Theory – Bull Rally Hypothesis https://youtu.be/dZBPLHnoH-U Honen bidez:
Warren Mosler Inflation Theory – Bull Rally Hypothesis
Transkripzioa:
welcome everyone to the mmt macro Trader we are live live stream tonight
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as I wait just a second for people to join I’ll go ahead and say hi welcome you all if you are new here make sure
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you get subscribed and turn that notification Bell on as well if you do end up finding this video
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actually if you are here right now and you’re live make sure you hit that thumbs up button and then if you watch this down the line and you did find this
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video helpful make sure you give that Thumbs Up Button a smash as they used to say back in the
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day anyway we’re live uh tonight we’re going to talk inflation uh had some really good conversations on
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um Twitter today some good threads on Twitter and I thought I would cover those discussions if you are here make
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sure you say hi in the chat and uh yeah if you have any questions along the way
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about anything uh anything at all just go ahead and fire away and we can uh we
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can discuss I think where I actually want to start is with um with what the Market’s doing
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today so let me switch to that screen real quick
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let’s see we’ll go here and pull up my s p chart and we’ve had one hell of a run
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from the low not a little uh what more than a week and a half ago or about a week and a half ago now uh Thursday
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after the fomc we dropped to 3 500. it was actually effectively what I what I
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anticipated uh I think I called that out almost exactly in the on the last live
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stream I had is to check out for that big opportunity for the Bulls here so far they’ve taken full advantage of it
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but I will say we are approaching uh really today approached as we were approaching 3 900 a key resistance and
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it is going to be that 3 900 uh that the Market’s going to need to get over to really confirm a full shift from really
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what we’ve seen for the entirety of this year into a new more bullish style regime too many models I use both the
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directional model and the volatility model still have not switched to kind of a buy or bullish signal
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each respectively in part because especially the what I call My Vault shift model needs to see a break a clear
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break above 3 900 to go ahead and get that we haven’t seen that yet but I did want to point out or at least start with
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the fact we’ve seen one heck of a rally and to this point um pretty much expected but that 3900
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level is going to be key and I can kind of explain why in the uh in the uh the
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the data itself let me bring up my data dashboard here we’re taking a look at the net gamma at each strike level for
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the S P 500 across the entire chain and as you can see we have a massive build
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positive gamma at 3 900 and a massive negative build at 3600 price is right in
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between right above 3 800 we are effectively on the gex flip and it’s these sort of market conditions
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that get very very tricky what we need to do is fully cement ourselves above 3
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900 and allow that volatility crushing
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volatility crushing mean reverting and we mean reversion enforcing sort of uh
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sort of hedging activity that happens from the dealers in the market market makers to kick in and we need that to
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come into place to wash out any sort of risk of what is still a very large uh
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very large basis of of put contracts that are open below the price and the
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risk here is is when the dealers are hedging those puts underneath the price and we don’t know that every every uh
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dollar of the net build of gamma underneath the current price is in fact
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you know a put that was bought by uh by you know Speculator and then the
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the dealer on the other side of course selling that but we don’t know that for sure but enough of it likely is and as
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price moves lower the dealer the the market maker is forced to sell shares as
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price goes lower so that’s why we’re in a very precarious spot as we’re close to the X flip as price pushes lower we’re
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going to see more say uh more shares of the s p get sold by hedgers by dealers
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as we you know effectively reject this current level and that could uh you know
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start once again the selling cycle so we’re far from Clear 3 900 is definitely
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the hurdle I mean we are right on the edge and we’ve made it to the edge quite a few times I mean we’ve made it two or
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three times to kind of the edge of shaking uh kind of the negative gamma rut that we’ve been in for the majority of the Year unable to make it as you’ll
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see in some of the data tonight actually I mean there’s there’s both uh kind of uh possibilities for this market and
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there’s still quite a few strong headwinds for this Market it’s going to have to face going forward
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so that’s the spot right now uh I mean so far everything’s kind of playing out as good as it can for the Bulls
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everything makes sense at this juncture we’re just going to be at a spot where uh effectively can the structural flow
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is primarily the fiscal flows kick in or is the degradation that we’ve seen in Bank flow is going to continue to hold
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things back and that’s kind of my short my short take at least on on where we are at with the current situation in the
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equity space but tonight’s main topic is going to be on
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on inflation and the discussions and the Twitter threads that uh that popped up
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today and uh particularly kind of the the Warren Mosler mmt thesis on inflation I’ve hit this many times
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before I I you know it’s probably worth um talking about again and addressing
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again what I can do real quick is uh pull up one of the threads that came up
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to kind of set the stage uh the first thread uh by Andy uh constant and doesn’t even have a good
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mmt theory suggesting uh it’s just higher fed funds are inflationary I gave
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my two cents uh there was also another thread uh by Steve Roth that Steve king
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or I’m sorry that Warren Mosler popped into as well and kind of gave his piece so we’re gonna go over some of these thoughts some of these ideas and
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um yeah just kind of lay out the lay out the case and uh try and wrap our heads around I
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think what is probably the most you know the the the the most realistic uh uh
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Theory framework for uh for understanding inflation and then trying to understand you know kind of what’s
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been causing the inflation so that’s what’s on for tonight um yeah again real quick if you are new
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here hit subscribe hit the notification Bell and then also if you are watching live make sure you hit that Thumbs Up Button much appreciated the the
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algorithm will appreciate it um and if you are in chat say hi
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um yeah and if you have any questions make sure you let me know let’s talk inflation uh let’s talk
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actually I mean let’s kind of use the Twitter threads themselves as a bit of a a jumping off uh part here and I mean
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effectively the question is I mean it’s pretty well known at this point at least mmt the theory is is that the higher the
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rate increases that the FED is uh the FED is instituting right now through their policy it’s going to likely
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support the current inflationary Trend that we have been on and in short and I can just kind of read what I wrote here
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the the mmt hypothesis is the Fed is the Monopoly price Setter of rates I mean that’s that’s uh kind of the core mmt
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Theory rate hikes increased the term structure prices of the economy and the state now paying more uh so the private
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sector also is going to have to pay more and I put in here and I’ll build on this
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uh one of the things that we can do is kind of build hypotheses right we can I mean we can go look at the data we can create these theories go look at the
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data and see if in fact uh the data presents what we’d expect given our
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assumptions and we do see that I mean we do see in um in the actual data itself that the
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velocity of money and this is kind of the component of inflation that I think you would see expressed particularly if
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the term structure prices as being driven higher uh because of uh because
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of rate hikes I think this is the component that we would expect to see and we do in fact see the velocity of money increase uh relative to the FED
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funds rate getting pushed higher and it does seem to be that the fed’s funds rate at least is likely kind of uh what
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what what’s the actual driver pushing things forward unfortunately the velocity of money that I have here from
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the from the Fred database got removed or deprecated at the end of 2021 I
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believe so I had to cut this the chart a little short but either way it’s still it still is is
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um yeah quite a stunning look here when you overlay the two of them but to give some more depth down the line eventually
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Warren Moes they’re laid out his exact uh his exact framework and posted his we
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call this kind of paper white paper on inflation this is in the description below right now I believe so if if you
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want to read this in full please please do so and in more detail and I think
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that the the thing that kind of really trips people up and and also the the um uh what got brought up in the
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discussion with Steve Roth as well is um is this idea of the interest payments
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adding to the net uh private sector savings and what impact that would have
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on inflation as a whole and uh and so you know I’ll address that that’s really where kind of the conversation went it’s
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something I really haven’t addressed too too much because and again maybe a big qualifier for this whole this whole
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discussion to begin with you know I’m really focused on understanding mmt because from the perspective of a Trader
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and investor right obviously I have my my things I hope I
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wish for policy wise but primarily um you know what I’m doing here at least
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on YouTube and where I want to expend the most of my energy is to understand and and take what mmt the foundation
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which I think is the right representation of what you know economic reality actually is and and in in the US
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and globally and apply that to understand how markets actually operate and so
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um there are some things that I don’t spend a ton of time on in terms of research but what I need to do is glean
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okay what is the you know what are the theoretical implications uh not only for
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policy but given you know given those kind of policy levers that then get installed based on
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um based on these mmt assumptions what can we then determine market wise is a possible outcome so that is I mean that
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is really where I’m going to spend my time and my energy so some of these things I just kind of said on the shelf
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and say okay you know down the line in terms of policy I can try and think things through maybe deeper down the
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line but again my heart in this is really from that of an investor Trader of a market Watcher trying to understand
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what the implications might be on the market so bear that in mind is kind of an overall qualifier uh to some of this
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uh some of this discussion going back to the to the white paper that Warren Mosler puts out I mean effectively the
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first few parts of this he really just establishes the core nmt thesis uh the the the the the the state operates is a
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a public Monopoly of the currency nothing I mean if you’ve been around mmt
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that makes a lot of sense and it’s really when he starts to get into um really when he starts to get into
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kind of the function of the state actually spending as it pertains to setting the price level with the
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inflation discussion really happens and so I I would kind of I would kind of argue it like this and and kind of more
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Lehman’s terms is effectively when when the state spends one of the one of the
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outcomes one of the uh one of the things that it’s doing is it is to a certain extent it’s setting the price and it’s
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setting the price to nominated in its own currency for what it is that it’s
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purchasing that it’s acquiring uh for uh for its purposes and the reason that
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this matters is because ultimately we pay taxes in that currency and then the effect of that is we need that currency
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and so it is the the kind of the the base the price floor uh for all exchange
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because of its Monopoly situation as the as the currency essentially the currency
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creator the only thing he points out here too which is a worthwhile note is not only
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can the government itself acquire goods and services directly but it also has a
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banking system that uh War Mosler makes the argument for is effectively a government agent right since you need a
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bank Charter to open a bank you’re effectively a regulated bank or a
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regulated state agent and so even when the bank or even when the state kind of
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abdicates its direct authority to create money to the banks it’s still giving it
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a regulatory framework it allows it to create money only in certain situations and then even then
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now this is my kind of the part on this as well even then the creation of
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um of what we’ll call Bank flows it has a completely different Dynamic than that of the actual of the actual what I’ll
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call fiscal flow when it relates to kind of the market dynamics but either way the point is still made and I still
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think valid that he makes that banks are agents of the state and then he gets
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into kind of the the the the meat of it here as it as it pertains to inflation and that
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um ultimately when the government decides to set a price and in this
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instance he he says hire a soldier that the price level is therefore defined let
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me just for example if the state has an open end and off or die or soldiers at 50 000 a year the price level as thereby
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defined will remain constant regardless of how many soldiers are hired uh in regards to State’s total spending the
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state has set the value of its numerary exogenously providing that information
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of absolute value that the Market Force Market forces then utilized to allocate
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by Price which exchange values of other goods and services to determine in the marketplace without the state supplied
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information however there would be no expression of relative value in terms of its currency uh I have someone saying hi nope I have
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I have a bot um we’ll delete those later
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let’s see all right
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um so I mean effectively what’s uh what it’s saying it is uh if I mean another way to look at it
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the state would all of a sudden come in and start to say I don’t know what a gallon of milk goes for my wife does the uh does the grocery shopping but let’s
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just say the government comes in and it’s gonna start buying every gallon of milk for ten dollars or what whatever it is
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right I mean they’re setting the price floor on that and the uh in sense we’re
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all trying to earn money to ultimately save or pay taxes uh with that money
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then um um then effectively where you know it’s
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it’s we’re all going for that same dollar it’s setting uh it’s setting the price floor he then points out that uh
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should the state decide for example to increase the price it pays for a soldier uh to 55 000 per year would be
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redefining the value of its currency downwards as important that’s where the inflation Park gets in it would be redefining the value of its currency
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downwards an increase in the general price level by 10 as Market forces reflect the increase in the normal
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course of allocating price by determining relative value and for as long as the state continues to pay the soldier 55 000 so 5 000 more per year
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assuming a constant relative value the price level will remain unchanged and for example the state uh would have to
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continually increase the rate of pay ten percent annually to support uh The Continuous annual increase of the price
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level by 10 percent so that’s kind of the uh I mean it’s kind of the Crux of how it is the state
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is establishing certain price level certain price levels as the Monopoly
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um as the Monopoly currency issuer in uh in its uh in its you know kind of
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sovereign domain where it controls at any given time so um I mean I I think it’s one piece that
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is often misunderstood and just often kind of glanced over when you start
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thinking about money as it relates to price setting uh and I think it’s uh really the the core building block on
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top of what I think most people are already kind of intuitively understand with mmt uh so that’s the first piece
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that you kind of need to get into place and the next piece is the inflation Dynamic that occurs by this and that so
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many of prices that get determined that the state’s going to pay out for and I’m starting to add on to his his exact
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argument here but ultimately you get a since some of the prices are stuck to
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inflation right they get indexed to inflation you’re going to see a Perpetual increase uh in the prices paid
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um and so I mean that is one of the effects of kind of the spiral Spiral
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upwards in inflation so he makes that case there here uh let’s see let me pull
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up some other notes I took on this um I mean the other thing too is since so
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many bonds are outstanding in the new bonds that are going to be issued are going to be issued at the higher interest rate the other impact of this
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is the new money itself uh is is both costing more and effectively the exact
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same thing that was happening in our soldier in our soldier example is now going to be happening with the new money uh coming in so you have quite a few
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inflationary channels that are occurring that um that effectively add up to each
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other and can kind of start this this higher push and prices but I still think and he doesn’t spell it out I don’t know
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uh how much he spells it out in his white paper but I still think the one piece of this that is without a doubt
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especially if you’re an investor Trader that is very easy to show is this idea
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of term structure of prices and I mean another way to kind of think about this is if all of a sudden the FED were to
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set the interest rate to 100 right I mean the entire obviously the heel curve would go wild but what that would do is
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is everyone would have to reprice the cost of doing business into the future a
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hundred percent higher and then 100 higher the year after that and then you’re right I mean right you’d get this exponential inflationary growth which is
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exactly what does happen in hyperinflationary situations right you
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get a collapse in the ability for the government to uh to repay its debt because it gives up that Sovereign
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control it allows the market to take that over it pegs its a currency to something and then you do get kind of an
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inflationary runaway and and a way to demonstrate this that I think is quite intuitive to uh to Traders is to go
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ahead and pull up um the uh the front contract uh divided
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by the back contract or second month contract of a hard commodity like gold and show that when you’re in a rate
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hiking cycle like we were in from 2016 through 2019 or 20 uh essentially post
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covet until we’re at today you can see the ratio of the of the the second month
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contract by the first month contract also curve higher and it’s it’s not because and obviously Gold’s not going
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up and prices not necessarily the gold is going up in price but it’s that on something like gold that doesn’t have a
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ton of supply issues and storage is relatively stable uh on on Commodities
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like this you’ll see this term structure follow uh follow rates higher and this
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happens in effectively in any commodity like gold and to a certain extent in
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every commodity the future cost of it is being priced in into that term structure prices and that’s what warmoza talks
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about when he’s talking about the term structure prices this video right here that I just pulled up is in the
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description below as well he spells out that in more detail well worth watching but that is that is really kind of the
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Crux of the argument and that is why ultimately I mean putting all these
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pieces together is an mm tier it makes sense that
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inflation is going to is going to kind of push higher or at
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least continue to be supported with higher interest rates so I spelled this out in a Twitter
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thread I’m probably a little more succinct in the Twitter thread uh than I did here but either way spell it out and
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immediately the response that I get is regarding well what about the 1970s and
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volcker and heading into the 80s what about uh what about that didn’t that
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kill inflation and I’ve I’ve brought up actually I think in that Twitter thread
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um I can show let’s see let’s see if I can do this in real time I’m realizing
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um I’m realizing I should have had this slightly better better prepared
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um but but effectively I mean effectively what I showed is this velocity of money by the actual price or
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by by uh the the FED funds rate continue to remain true this the same correlation
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remained true back in the 1970s right I mean the theory remained true in the 1970s and I think what was far more
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likely and I think I did post uh at some point I think I did
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post this somewhere yeah eventually I think two things really killed the inflation in the 1970s one
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um and unfortunately the fiscal data that I do have that um that goes into my models from the daily treasury statement
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only goes back at least daily uh that I can get via the API to 2005.
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um so I had to I kind of had to to do this in in as quick and dirty as way as possible but you can see in the late 70s
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heading into the the ultimate recession that happened in the early 80s we did see a fiscal crunch as adjusted for
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inflation because one of the things as well that you need to think about is um as the fiscal flow is hit those
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become net Financial assets for the private sector as they hit obviously if
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inflation is pushing higher then every new dollar is valued lower than the dollar prior right so uh even if you
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have relatively stable fiscal flows if inflation continues to push higher then
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that can create still effectively a fiscal crunch of short and we saw exactly that so I think that is likely
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one of the reasons why we saw a recession we also had deregulation of natural gas that Jimmy Carter passed we
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also started to see at this point some deregulation um just just overall in energy uh that I
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think is a likely component to the disinflationary pressures that we saw that ultimately brought down inflation
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what I what I don’t see in and here’s kind of my counter argument to all of uh kind of the the uh the opposite side of
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of the inflation coin is I don’t see any data that shows that the higher interest
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rates actually led the decrease in inflation it’s the other I mean the data
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shows it the other way around and if it were to be true then then my my
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immediate question would be it seems like the inverse of it uh certainly isn’t true right because we have seen
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for um we have seen for the better up until up
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until uh the the the financial crisis post covet up until then we’ve seen
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um zero interest rate policy produced no inflation right so certainly uh in Japan
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uh still to this day as a desert Palestine they haven’t shown uh any inflate I mean their inflation is at
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three percent or whatever uh at this point um and they’ve kept a zero interest rate
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policy and they have you know relatively flat inflation obviously uh their currency is having a little bit issue but every currency except for the dollar
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is having a little issue in part because of the euro dollar crisis going on right now um but beside the point uh the the
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inflation of uh the inflation in Japan remains very low because of the low interest rate and again that would make
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a lot of sense from an mmt standpoint uh that uh that you’re going to see
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relatively low inflation so I I mean again I’m looking at this as an investor
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and as a Trader not so much as a policy person and my thought here is the only conclusion that I can come to based on
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the models that continue to predict what reality actually turns out to be is that
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the higher interest rates are going to support inflation now the the neoclassical argument is going to be
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well eventually it’ll stipend the business cycle but if higher interest rates are going
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to allow this income channel of higher interest payment on bonds which would then mean more uh Financial assets more
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financial assets of savings in the private sector how is that ever going to happen
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especially if it’s going to increase the velocity of money so the income channel is going to just operate at a faster
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level right and you know any sort of kind of business Calamity that might come of it will constantly be one cycle
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too short because the new you know the new money will flow in there and I don’t I don’t it at least domestically in the
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U.S in and of itself I don’t see how that happens I do see a path we’ll get there where something similar to that
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could happen but certainly as it’s constructed in mainstream economics I
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don’t see that argument happening um let me pull something else up here
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[Music] um what I actually think is is a a reasonable possibilities that we just
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kind of continue on in a a bit of uh uh I only call it stagflation because at
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this point it’s not even a stagflation cycle but where we continue to get kind of surprise growth and surprise inflation and the markets continue to
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the markets continue to push higher um I did this is I did want to bring this up as well let me um give me one
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second to bring this chart up right here to
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kind of continue on um this discussion of of because one of the
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things yeah actually I’m going to bounce around I apologize give me a second here one of the things that Warren Moser did
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bring up in one of his discussions is that any case the government sector is a net payer of interest uh to the non whoa
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that was not what I wanted to read oh here we go uh and I think that the net Financial assets the government has added to the economy is the quantity uh
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or is the equity that supports uh the credit structure and this is so so
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let me let me let me walk you through my thinking right so neoclassical mainstream economics says that
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eventually interest rates are going to dampen the desire for uh for businesses
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to borrow for banks to lend and well really for businesses to borrow because it’ll be too expensive
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and therefore they will have to lay people off and by laying people off you will get a decrease in demand right so
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the main thing there is that businesses need to stop borrowing and then need to lay people off well if a business kind
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of my counter to this is that if a business anticipates that they’re going to
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continue to get profit and they start seeing that they can raise their prices what you know what’s the what’s the push
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to get or to get them to want to lay off people right I mean if they can anticipate even higher profits into the
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future what’s the push to start the layoffs right now just take that theory outside of the current environment
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momentarily and just I I don’t I don’t see it necessarily and again if you do this from an mmt kind of framework
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that eventually the higher interest payment from the the interest rate channel into the private sector
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should bolster new private sector savings right and so what I want to then bring up to kind of
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uh you know make that argument all the way through is this chart right here and
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I think I posted this in one of the one of the discussions and we can go over it I drew it back a little bit further uh
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time wise but the orange line is my fiscal flow line
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um I’m sorry you know what I’m realizing these are flipped oh orange is the bank flow blue is the
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fiscal flow I apologize uh so the blue line is the fiscal flow line and it
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comes directly from the daily treasury statement and the orange line is going to be kind of a proprietary model that I
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put together to gauge the expansion and contraction of Bank flows and uh if you
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know if you know what the stock market does you’ll realize there’s a very strong correlation between that line and
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the stock market obviously I tie that all into the models that I make for trading but the question is and and this
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is uh you know the main kind of theoretical Crux of all of this is will the higher fiscal flows support and and
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effectively lead to an expansion of the uh of bank loans right so if if the Crux
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of the mainstream argument is that businesses aren’t going to want to spend more
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because uh uh or aren’t going to want to borrow more
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um because of higher interest rates therefore decreasing the decreasing the
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bank flow expansion or contraction rate and therefore leading to Leading the
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layoffs well if that’s the case then is there any reason to believe that that is correlated to rates or does it correlate
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to something else and my argument is the expansion and contraction is more Muslim
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states of the banking sector is more likely tied to kind of the equity
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structure really the the essentially it’s the capitalization of the banking system are these fiscal flows right so
30:50
when the government spends that becomes a private sector savings that private sector savings is effectively the
30:57
capital structure of the banking system right I mean that is what it’s going to use as its Equity to expand and you can
31:03
see that when we contract it at the end started to contract at the end of 2020 as the fiscal flow is really fell off
31:10
and then subsequently as tax season hit 2021 we took the second dive we saw that
31:16
spark the major sell-off in equities starting at the beginning of this year
31:23
because we saw a contraction of the bank flow cycle right we saw the contraction
31:30
of uh of that kind of endogenous money cycle that happens from the bank Flow
31:37
side and my my thought here is based on the way this all overlays right I mean
31:44
you see the big run up in 2000 heading to the great financial crisis where we
31:50
saw very stagnant fiscal flows so back in 2003 2004 there’s a relatively strong
31:55
fiscal response that gave a little bit of space for the for the private sector
32:01
to expand in terms of debt we saw that lead up into really the massive expanse
32:06
uh as as we really kind of um uh baselined out in fiscal flows that
32:13
obviously led to the great financial crisis basic mmt 101 we saw Bank flows really
32:20
take a while to to start picking back up we finally saw the liftoff happen in in 2010 after we saw the big influx of
32:29
fiscal flows following the great financial crisis fiscal flows remain relatively dormant uh we really start to
32:36
taper off 2015 2016 get as close as we’ve been to a recession uh in quite
32:42
some time at that at that juncture and then finally when Trump came into office we started to see fiscal flows take off
32:48
in 2016 2017 2018 that led to a change in um and the overall kind of the trend
32:57
of the paying flows being flows really started to take off as we headed into 2020 and then only hyper accelerated if
33:03
you will because of the massive influx of uh we’ll call kind of new new Equity into the bank sector
33:09
um and then ultimately uh collapsed as the fiscal flows fell off uh earlier
33:14
this year crunching the uh the the the cycle that occurs on the bank side of things so
33:21
that’s kind of how I’m reading it that’s the progression at least that I’ve seen over time and I think the correlation
33:28
makes sense here and can really be understood from the kind of the the mmt the Mt understanding here so that being
33:36
said we’ve been seeing relatively strong fiscal flow since we bottomed out in the middle of the summer uh September came
33:42
in very strong I mean August came as strong September came in strong October is likely going to come in strong we’re
33:47
probably going to see some strong flows we’re going to see this average kind of continue to Trend much above what we saw
33:53
for the majority of the 2010s um certainly we’ll never get back to
33:58
where we were post covid but we still we should see those fiscal flows push push
34:03
more turns out to be savings into the private sector and kind of re-spark the the bank flow the bank flow cycle now
34:12
um how could this I’m gonna give I’m gonna give two scenarios here that that uh obviously kind of go against each
34:17
other but both seem uh both seem plausible the one curveball in all of this and no one points this out
34:24
um but if if you’re a if you’re on the uh the neoclassical side of things the
34:31
one place where this Dynamic changes entirely is in the shadow banking system uh well I shouldn’t say entirely but but
34:37
it is in my mind at least a different a different situation is in the shadow banking system the Euro bank or the euro
34:43
dollar system that system operates slightly differently because um well it’s still reliant on these
34:50
fiscal flows to eventually find their way in there one they’re only going to find their way in there if the rest of the world uh if the rest of the world
34:56
exports to the US and then Imports those financial assets so that needs to uh that needs to happen
35:02
um love when my favorite and what’s up Ryan
35:07
um yeah yeah I’ll I’ll do some some uh I’m gonna uh tap the fingers or whatever
35:14
um open my water bottle slowly uh for the ASMR um
35:19
where was I the ASMR joke threw me off here uh good joke good joke
35:25
um okay euro dollar system yeah euro dollar system doesn’t operate in I mean it
35:31
operates closer to like loadable funds to a uh to kind of a money multiplier model right because it is very Reliant
35:38
uh on the collateral that comes in Via uh via the channel of exports in the US
35:44
imports from the um from the uh or is it and it receives obviously Imports as
35:51
um as dollars so it uses that to then uh to then uh structure and and is
35:59
effectively the equity of the private of that banking system the shadow banking system but what it doesn’t have going
36:06
for it is the US um like we’re going back with a Warren
36:11
Mosler discussion of all the things that that he enlisted off in terms of the Monopoly price editor well the rest of
36:17
the world isn’t doing it that way I mean they have their own states with their own currencies that are doing their own thing setting prices and so there is a
36:24
disconnect there um in terms of the U.S model versus kind
36:30
of U.S domestic model versus the rest of the world model uh the other I would say the other difference too is although
36:37
certainly income there’s going to be that income channel from the bonds another thing that it doesn’t have it doesn’t have any of the regulatory
36:43
oversight and it’s certainly the Seattle banking system is not an extension uh in any way the US government is a state so
36:50
that’s completely different it’s it’s unregulated well it’s not unregulated but it’s not regulated directly via the
36:56
Fed so you do have that as a as a difference and certainly the dynamic at
37:03
play in terms of what is actually setting the interest rate price is completely different and the euro
37:10
dollar system it’s the sulfur or Libor that’s setting the price of interest for
37:16
new loans in the U.S it’s a function of the uh the FED is Monopoly price Setter
37:22
of interest rates so these are two completely different systems in kind of the core um and kind of the core pricing function
37:30
of money itself and I’ve heard Jeffrey Snyder talk about this that uh that in
37:36
in in to him it was you know he I think he has his theory on why this happened
37:42
but I think mmt explains it perfectly in 2008 um interest rates in the U.S were pushed
37:48
to zero effectively I mean they’re during the during the height of the crisis you saw a rates drop
37:54
um in the U.S because the Federal Reserve is the
38:00
Monopoly price Center of interest rates I think that’s uh we’re gonna play a drinking game for how many times I can say that the FED is the Monopoly price
38:06
Setter of something um if you play that drinking game you will be faced by the end of the night
38:12
um so since the FED is the Monopoly price editor rates are going to fall I mean they’re going to go the direction that the FED says but since that’s not the
38:19
case in the euro dollar system because it’s not the case the market is up to
38:24
its own devices to price actual risk and in that instance Libor went through the
38:29
roof and uh Jeff Snyder has had some great discussions now about as they try and shift over to the the new pricing
38:36
system um on how it’s an ineffective system while it’s ineffective because the FED
38:42
operates get your drinks ready is a monopoly price Setter of interest rates in the U.S not uh not the same way and
38:50
domestically that is actually a risk-based assessment so all that together to how can we actually
38:55
maybe find a recession I’ll have all of this I do think that there is uh uh definitely a major risk here for the
39:01
rest of the world to have some major banking issues um if uh if the kind of you know
39:08
relatively deflationary crunch that we’ve been seeing in bankflows continues on going forward um
39:13
then yeah I mean you know then it is going to spell uh absolute disaster and eventually you’ll start to see Banks uh
39:20
get solvent I think we’ve seen what Credit Suisse uh hit that uh hit that note recently and and that that makes a
39:26
lot of sense and that could tumble into the U.S certainly so if you’re a
39:32
neoclassical or Austrian or whatever and you really want to make the the case that the world is going to end soon
39:38
financially that’s the path you need to make it that’s the only path that makes sense it’s not going to happen
39:44
uh via the U.S Channel because the U.S Channel I think you’re only going to continue to get inflation supported so
39:52
it was a 40-minute long discussion essentially kind of making my case and defending
39:59
um the uh you know kind of the mmt inflation case so I hope that made sense
40:05
let me know if you have any questions about all that if you’re watching this after the fact you’re not here live let me know down in the comments and I can
40:12
get back with you um yeah I I hope that all makes sense gold get uh Nicholas I’m assuming you’re
40:18
asking is the time to purchase gold don’t think so maybe
40:23
years ago the first thing I ever got into was gold investing I think I’ve
40:29
told this story before but I purchased gold give me a second to pull this up I
40:36
purchased gold in this is really when I started really
40:42
getting into you know using my savings for uh
40:49
for investing was I want to say yeah I I think and this is just I had no timing
40:56
skills whatsoever here but if I if if memory serves I bought gold sometime and
41:03
maybe starting 2007 2008 I mean that’s the first time I had a job where I could maybe really get the income flow to do
41:11
it I want to say really at the bottom of the great financial crisis I was getting into things I was a huge gold bug you
41:17
can’t see any of this right now I’m sorry um
41:22
there we go okay yeah I want to say anything starting in 2007 is really when I started kind of researching I really
41:29
got into what Peter Schiff had to say and so around 2008 saying when I finally saved up enough money I think we bought
41:36
like 10 ounces of gold I want to say maybe around eight nine hundred dollars
41:42
um anyway we bought it at that point um it just so happened that we were
41:47
getting ready uh to get into our first house and it just so happened that it was right
41:53
around early September of 2011 and then I needed some cash and that is when I
42:00
sold and it had nothing to do with timing but that’s the last time that I’ve really ever been involved in Gold I
42:07
will say I mean I will say this that in terms of the kind of reinflationary disinflationary cycle gold does do best
42:16
when things start when things start kicking up again I mean you’ll see a moderate correlation between the gold
42:22
chart in front of you right now and when I pull up the
42:27
data dashboard that I have you’ll see a relatively uh I mean I don’t say strong but a
42:34
correlation between between the gold cycle and in the overall Bank flow cycle so
42:42
there is a bit of a correlation there I I really think that gold I mean my my
42:48
thought here is I’m going to switch back to the uh to the Chrome tab my thought
42:54
is that we likely repeat what we did post grade financial crisis that kind of
43:01
makes the most sense to me so personally I won’t be getting long gold could I be wrong yes would it bother me if I’m
43:08
wrong no that’s kind of my thought on it I’ve really gotten out of the gold game altogether so hopefully that’s not too
43:14
disappointing of an answer but uh not what I’m I’m looking for right now for
43:20
the most part I stick with uh with equities because I just think the the data there is is so much more
43:26
correlated to forward returns than any other data you can get um so that is uh that is where I stick
43:33
um let’s see let me go over all my notes again let me make sure I’ve kind of hit all the high points oh yeah okay so let’s do this for a second I do want
43:40
to talk about I I will admit that I I certainly didn’t see the wave of inflation that we ultimately got
43:46
um to the extent that we ended up getting it and um
43:52
but I don’t think that was a failure in mmt I do think it was more of a failure in me just assessing the macro landscape
43:59
I I really didn’t think we’d get inflation for that long I mean it makes sense that we got a little bit a little
44:04
bit of boost of inflation I mean certainly with the massive fiscal flow that we saw I mean that that would uh
44:11
that would raise prices and I mean there’s no way around that but I didn’t think it
44:17
would stick for that long I really would argue though and I’m going to switch back to a different screen here I really
44:23
would argue that the inflation that we’re seeing was originally caused by a
44:29
supply shock uh transitory whatever you want to use I still think it was that
44:35
was the case and I still think the data does not spell out any sort of well we spent too
44:42
much money or I mean whatever the argument is there was too much QE immediately none of that supports the
44:48
inflation thesis I do think it is ultimately a bottleneck of
44:55
um of the supply chain and I think it was a supply shock and in terms of the
45:02
pricing Dynamic when it comes particularly to Commodities but in quite a quite a few assets I really think it’s
45:09
the supply that drives the price more than the demand while
45:15
markets pay more attention to demand and and as at least just and it’s just an intuitive sense it’s not necessarily
45:21
baked into any of my models per se beyond what you’re about to see but it’s just my assumption and one day if I can
45:28
ever you know prove it research-wise I will certainly prove it but um
45:33
my intuition tells me that like what you have up on the chart is is probably more often uh not the case which is uh this
45:40
is my oil comparative inventory chart stole this from art Berman he made this uh pretty popular years ago and
45:47
effectively it’s just showing the relative Supply that is available with
45:53
oil against the price you can see the strong negative correlation between the two supply drops price goes higher it’s the
46:01
supply that’s pushing the price of oil oil of course is kind of a main component of energy uh in in the
46:08
inflation channel from energy so I mean I think a lot of this comes from a lot of the inflation we’re seeing is tied to
46:14
the drop in supply of oil of energy finding its way into the overall price
46:19
market and in theory we we should
46:26
we should be seeing an ending to this right I mean this is this is kind of my point okay yeah give me another second
46:32
I’m I’m thinking of another of another thought here um hold on I’m pulling up the wrong screen here in theory if if spending
46:40
caused the inflation then we should be seeing a major drop off of inflation at this point because we’ve seen a major
46:46
drop off of fiscal Flows at this point right we’ve seen Bank contraction we’ve seen fiscal contraction over the last
46:53
year if inflation is being kept High because of too much money or whatever it
47:02
ain’t happening uh because of what the neoclassical argument would be right which is why I think the only thing left
47:09
that can be actually causing the inflation is or at least perpetuating the inflation is the mmt argument
47:17
um I I just it nothing else here’s the thing I could be convinced by
47:23
another argument I don’t I mean I don’t in one sense I don’t care necessarily what the Pilot’s decision ends up being
47:28
I mean I I want what’s best for my country what’s best for the people of my country what’s best for the world policy
47:34
wise I will obviously advocate for good policy over bad policy any day of the week but
47:41
what what I what I haven’t seen yet is compelling data that can show me that
47:50
any of the kind of normal Arguments for what’s causing the inflation that it’s too much spending or whatever right I
47:56
mean I really just think it comes down to a supply chain issue and we’re still seeing that and then ultimately the
48:01
reason that it’s perpetuated even as we start to see quite a few Commodities begin to drop right I mean across the board a lot of these Commodities have
48:07
dropped quite a lot the reason I think we continue to see those price levels being perpetuated is because the FED has
48:13
started on this uh rate hike cycle which will never end and this is where I’m going to finally kind of wrap things up
48:19
um kind of the last argument I probably will go on for another hour but uh those are having to wrap things up and if you aren’t here and you do have any
48:24
questions make sure you fire away um I’d be happy to uh be happy to answer them
48:30
um that I mean I really think there’s a there’s a real case that could be made
48:35
that we could end up seeing a hell of a bull run out of this right because if we are able to get the pain flow cycle to
48:43
to restart here and again if I’m right that uh that there is this kind of leader uh that happens via VIA the um
48:51
and again if you are new here I swap the colors I bet I botched it um
48:57
on accident if there is a way uh to really you know reset the the cycle and if the fiscal flows are going to precede
49:03
the bank flow cycle then we could see the bank flow cycle start up again and if that’s the case we have interest
49:10
rates already pushing higher we’re going to start to see the impact of the fiscal
49:15
flows that are going to be added because of the uh because of the interest payment on the new bonds heading out so
49:21
we could start seeing even more financial assets headed out to the to the banking sector and then on top of
49:26
that here’s the other thing too if I’m a bank I make money because I make loans
49:31
at the interest rate right and what I’m going to get is the interest payment right the principal is going to wash off
49:38
the balance sheet I get to keep the interest payment so if I’m a bank and all of a sudden interest rates are are
49:44
getting really high and there might be uh the expectation that the fed’s going to Pivot right if that’s how it plays
49:49
out what am I looking to do I’m looking to to get around every regulation to make any new stupid loan possible going
49:56
forward I mean I think we saw a lot of that exuberance uh throughout 2020 into into 2021.
50:03
so I don’t see any reason for the banks to start being like Oh well we’re really going to stop making loans I mean
50:08
interest rates are as high as they’ve been in a very very long time banks are going to want to look for every opportunity uh to make to make loans and
50:16
that’s part of the Minsky assignment that’s part of the Minsky hypothesis is that eventually you get into kind of a Ponzi style uh Ponzi style lending
50:24
lending cycle and that to me makes more sense right now than anything else so I
50:30
I mean I really think you could end up seeing at the end of this a strong bull run to finish things off as opposed to
50:36
uh as opposed to a complete collapse now again this is this is why it’s very difficult this is why at the end of the
50:42
day my trading strategy is is data driven I I dump all these elements into
50:47
a Bayesian framework and I say you know kind of math figure it out
50:53
um because uh you know I mean yeah there are so many kind of counterfactual
50:58
arguments that you could bring up in the macro world and the data does lead I mean the good thing is at this point
51:04
um you know the main you know hedge funds have yet to exactly figure this out so I I’ve yet to see the uh the
51:11
correlation to four returns diminish so the data will tell the story but you
51:16
have on the one hand the um the contraction the the contraction
51:22
the bank flow cycle especially the euro dollar market really uh weighing things down but on the other hand you still
51:28
have this what seems to be potential kind of growth engine getting ready to start
51:33
um via the fiscal channel in the US you know which one wins out and I could easily make the case that the you know
51:39
the physical flows went out here and if we get a new cycle in um
51:45
and being flow acceleration uh we could see really I mean we could see this could be you know we could be in the
51:51
2000 to the 2008 uh you know correlation here we get a year of things running hot
51:57
so I I don’t think that that’s off the you know it’s off the table yet um am I you know am I you know placing
52:03
my pets now no again I’ll wait for the data to to confirm such an idea but I
52:09
don’t think it’s uh I don’t think it’s out of out of question at this point
52:14
um check my notes one more time let me see if I hit all the points that I wanted to
52:21
at this time yeah I think I did um so real quick before I I do finish
52:27
things up here I want to show one more thing and that is
52:33
um I probably get asked two questions more than any other anything else that are even even Market related or not
52:41
um and that is Douglas do you ever uh put any promotional pricing can I get
52:47
a you know A reduced price of your patreon feed and then also you know what
52:52
is what is it that you’re working with behind uh in that kind of magic uh in
52:58
the magic system that you’ve built and I’ve never offered a promo price
53:04
before but I I really have a desire to really start to expand the scope of
53:10
what I’m offering here especially for Traders investors and really want to you know push the the mmt thesis it’s been
53:16
taking a big hit as of late been blamed for everything we’re seeing even though there’s my understanding there’s not an
53:22
mmt policy maker that’s made a decision uh in in quite some time
53:27
um ever actually uh and so you know I really want to expand the scope of what
53:33
I’m doing here so I’m offering for the month of November it’s open right now but for the month of November 25 it’s
53:39
normally 69 25 for my top tier what’s going to happen is um I also get asked quite often is there
53:46
a cheaper tier that you can get in or you know like a once a week tier so this is it I I’m gonna offer which will be
53:52
the top tier going for 25 promo price for the month uh throughout the end of November
53:59
and if you lock that in it’s yours forever I won’t ever raise the price um if you’re locking that price it’s
54:04
yours and then uh going forward starting in December I’m going to swap to two tiers one where you get kind of a daily
54:10
update and access to everything including a daily update and then one for more of a kind of a market Watcher type where there’s only going to be a a
54:16
weekend overview uh a sort so if you want in before the price goes back up now would be the time this is
54:23
the cheapest I’ve ever offered anything so uh so yeah fire away and uh join up
54:28
and if you have any questions you know drop me a line drop me a a DM on Twitter
54:33
uh Twitter uh in the link below or just drop me a message here on YouTube and we can connect but uh yeah
54:40
it’s yeah this is the only time I’ll probably ever offer a promo I mean I really think what I what I offer is a ton of value to it so if you are active
54:47
Trader active investor make sure you check that out uh Link in the description below as well uh for my
54:52
patreon page which is just patreon.com mmt macro Trader um with that being said I think that is
54:57
what I have for tonight so unless there are any last minute questions uh that
55:03
come on in last second questions that come on in here I’m going to be ramping things up again thanks for joining if
55:12
you are new here hit that subscribe button turn that notification Bell on and if you didn’t end up finding this video helpful make sure you give it a
55:17
thumbs up on the way out with that being said I’m going to go ahead and log off thank you everyone for joining us tonight and we will see you soon uh for
55:24
the next live stream
